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Development Trends of Securities Companies

Business transformation and innovation-driven development will be the major topic for securities companies for years to come. This period will see major changes in the securities industry in terms of the profitability model, competition model, and competition pattern. These three areas are detailed below:

1. The profitability models of securities companies will undergo fundamental changes. Although there is still room for profit with the traditional conduit-based profitability mode, a revolution toward a market-based system will make competition in traditional business increasingly intense, driving down the profit rate. In contrast, nonconduit business such as M&A, collective entrusted wealth management, and direct investment will grow rapidly. These are likely to become fast growing and stable sources of revenue. The change will be driven by the adjustment of the national economy strategic layout, the deepening of the reform on the state-owned asset management system, and the release of residents' potential investment demand.

2. Comprehensive innovation, large business scale, mixed operation, and conglomeration will be key factors to competition among securities companies. In the face of external changes in the market, securities companies must promote comprehensive innovation in services, products, and management based on knowledge and information technologies. They must also promote intensive operation by implementing client relation management, business process restructuring, and corporate resource planning. They have to raise their capital scale by issuing additional shares and issuing bonds. They must also realize mixed operation and conglomeration through M&A, cooperation, and joint ventures. Establishing financial holding groups will also raise their core competitive strength.

3. With intensified polarization, strong securities companies will get stronger. Fierce competition pressure will come with mixed operation, market based systems, and internationalization. Due to this, polarization in the securities industry will be increasingly prominent. A number of large securities companies with great comprehensive competitive strength and standardized management will win the support of policies and the favor of the market. They will become bigger and stronger by means of bond issuance, private placement, listing in a stock exchange, and M&A. Securities companies with weak capital strength and insufficient core competitive strength, however, will exit the market after being acquired by bigger companies or going bankrupt. The securities industry will become a place where the strong get stronger.

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